Kraft Heinz sees hit from rising competition, supply constraints

(Corrects to remove reference to company limiting supplies of cold cuts to preserve margins in paragraph 10 of Feb. 16 story)

FILE PHOTO: A Heinz Ketchup bottle sits between a box of Kraft macaroni and cheese and a bottle of Kraft Original Barbecue Sauce on a grocery store shelf in New York March 25, 2015. REUTERS/Brendan McDermid/File Photo GLOBAL BUSINESS WEEK AHEAD SEARCH GLOBAL BUSINESS 12 FEB FOR ALL IMAGES

(Reuters) - Tater Tots-maker Kraft Heinz Co's KHC.O muted quarterly results echoed those of rival Campbell Soup Co CPB.N as more Americans opted for healthier meals, a trend that has pressured shares of processed food makers for several quarters now.

Kraft Heinz, owner of brands such as Velveeta cheese and Heinz ketchup, said on Friday that retailers in Canada were stocking fewer of their products — a factor that is likely to be permanent.

The company’s shares were down 3.3 percent in afternoon trading. They earlier fell as much as 7 percent to their lowest since August 2015.

“There is no question our financial results in 2017 did not meet our potential,” Kraft Heinz Chief Executive Officer Bernardo Hees said on a call with analysts.

Kraft Heinz and Campbell are the worst performing large-cap consumer staples stock over the past 12 months, losing 20 percent and 25 percent, respectively. The S&P 500 .SPX, in contrast, is up 15 percent.

Other food companies have in recent months spoken about escalating pressure from retailers, who are asking suppliers to offer lower prices and limit shipments so that they can control inventories better.

Food companies have tried to promote their healthier products but these have often failed to gain the sort of popularity their traditional products enjoyed.

Sales in Kraft Heinz’s U.S. business fell 1.1 percent to $4.79 billion, declining for the seventh straight quarter. They missed analysts’ average estimate of $4.81 billion, according to Thomson Reuters I/B/E/S.

Total sales and profit for the fourth quarter fell short of estimates as well.

Other issues that weighed on sales included a supply shortfall of its Ore-Ida branded potato-based foods and cold cuts.

Kraft Heinz said several of these problems are likely to persist this year.

Net sales inched up 0.3 percent to $6.88 billion, but missed estimates of $6.92 billion.

Kraft-Heinz, the fifth-largest food and beverage company in the world, achieved its target of cutting $1.7 billion in costs by the end of 2017.

“After looking at the company’s slide presentation yesterday, one might have come away with the impression that KHC is firing on all cylinders; today’s print was a reminder that the company still has a long way to go before this is the case,” JP Morgan analyst Ken Goldman said.

Excluding items, the company earned 90 cents per share, missing estimates of 95 cents.

Reporting by Vibhuti Sharma and Siddharth Cavale in Bengaluru; Editing by Shounak Dasgupta and Sayantani Ghosh